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Oppenheimer cuts Five Below amid slowing ‘underlying growth dynamics’

Published 30/01/2024, 09:46 pm
Updated 30/01/2024, 09:46 pm
© Reuters.

Oppenheimer analysts downgraded Five Below (NASDAQ:FIVE) to Perform from Outperform on Tuesday and lowered their target price on the stock to $200 from $235.

FIVE closed 1.7% lower on Monday and was slightly down in after-hours trading.

Although the company’s strategic positioning and consumer proposition “remain robust,” Oppenheimer is beginning to worry about the “underlying growth dynamics.”

This is due to “a now larger base of units, waning remodeling opportunities, and stepped-up reinvestment requirements, on top of already elevated operating margins,” analysts wrote.

The stock remains an attractive long-term opportunity in the consumer sector, analysts noted, however, they anticipate that the premium multiples of its shares might moderate toward recent lows.

“At current levels, shares of FIVE now trade at a forward four quarter PE multiple of about 29x, down from recent peaks of 35-30x, but still well above historic troughs of 20-25x and valuations assigned shares of other notable, albeit more modest new unit retail/consumer growth opportunities.”

Also, about half of FIVE's over 1,500 locations now showcase their latest Five Beyond concept. Looking ahead, Oppenheimer expects a slowdown in the number of new stores opening, shifting from mid-teen percentages to a low double-digit range.

Moreover, FIVE aims to finish its renovation projects in the coming years, a move that could impact the factors that have been boosting the company's comparable sales growth.

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